Machinery

Machinery covers industrial, construction, farm, truck and rail equipment, along with engines, transmissions, pumps, tools and elevators. MoatScope covers 130 companies here. Five have a wide moat, 61 a narrow moat and 64 none, so about half the industry is moat-rated.

How the industry makes money

Machinery companies earn on the initial equipment sale and then for decades afterwards on parts, service and upgrades across the installed base. Dealer networks carry much of that relationship, and financing arms help customers pay: Caterpillar builds construction and mining machinery, engines and power systems, and runs a large financing business that supports its equipment sales.

Where the moats are

Switching costs appear in 63 of the 66 moat-rated companies: equipment is built into customers' operations, operators are trained on it, and dealers service it. Intangible assets such as engineering know-how, brands and patents appear in 52.

• Caterpillar: brand, dealer network and a large installed base across construction, mining and power.
• Deere: the densest dealer and service network in farming and the deepest technology integration into how farmers work.
• Illinois Tool Works: proprietary products in defensible niches, deeply integrated with customers.
• Graco: dominant positions in specialized equipment niches built on engineering and reputation.
• Allison Transmission: a dominant share in automatic transmissions for the vehicle markets it serves.

The narrow-moat group includes Parker-Hannifin, Cummins, PACCAR, Wabtec, Ingersoll Rand, Dover, Otis, Xylem and Snap-on. Companies without a moat include Terex, ATS, Proto Labs and China Yuchai.

What wears moats down

Demand follows construction, mining, farming and freight cycles, so even strong franchises see sharp swings in orders. Electrification and automation can make parts of an engine or transmission franchise less relevant, and lower-cost manufacturers compete hard in standardized equipment.

What the quality scores say

The wide-moat companies score between 66 and 82 on MoatScope's quality scale, led by Graco. Snap-on, rated narrow, scores 71, and the industry averages 40.

What to watch

• Order backlogs and dealer inventories.
• Farm incomes and construction and mining activity.
• Growth in aftermarket parts and service.
• The pace of electrification in engines and drivetrains.

Moat ratings and quality scores on this page update as companies report. Price versus fair value for every company in the industry is in the screener.